Rogers 2011 Annual Report Download - page 71

MANAGEMENT’S DISCUSSION AND ANALYSIS
The determination of the estimated useful lives of brand names
involves historical experience, marketing considerations and the
nature of the industries in which we operate. The useful lives of
subscriber bases are based on the historical churn rates of the
underlying subscribers and judgments as to the applicability of these
rates going forward. The useful lives of roaming agreements are
based on estimates of the useful lives of the related network
equipment. The useful lives of wholesale agreements and dealer
networks are based on the underlying contractual lives. The useful life
of the marketing agreement is based on historical customer lives. The
determination of the estimated useful lives of intangible assets
impacts amortization expense in the current period as well as future
periods. The impact on net income on a full-year basis of changing
the useful lives of the finite-lived intangible assets by one year is
shown in the chart below.
Impact of Changes in Estimated Useful Lives
(In millions of dollars) Amortization Period Increase in Net Income if Life Increased by 1 year Decrease in Net Income if Life Decreased by 1 year
Brand Names 5 – 20 years $ 1 $ (1)
Customer Relationships 2 – 5 years $ 13 $ (23)
Roaming Agreements 12 years $ 3 $ (4)
Marketing Agreements 2 – 5 years $ 3 $ (5)
Impairment of Assets
Indefinite-lived intangible assets, including goodwill and spectrum/
broadcast licences, as well as definite life assets, including PP&E and
other intangible assets, are assessed for impairment on an annual
basis or more often if events or circumstances warrant. A cash
generating unit (“CGU”) is the smallest identifiable group of assets
that generates cash inflows that are largely independent of the cash
inflows from other assets or groups of assets. Goodwill and indefinite
life intangible assets are allocated to CGUs for the impairment testing
based on the level at which management monitors it, which is not
higher than an operating segment. These analyses involve estimates
of future cash flows, estimated periods of use and applicable discount
rates. During 2011, no impairment was recorded. During 2010, we
recorded an impairment charge of $11 million related to certain of
our broadcast assets, due to the challenging economic conditions and
weakening industry expectations in the radio business and a decline
in advertising revenues.
Income Tax Estimates
The Company provides for income taxes based on currently available
information in each of the jurisdictions in which we operate. The
calculation of income taxes in many cases, however, requires
significant judgment in interpreting tax rules and regulations. The
Company’s tax filings are subject to audits, which could materially
change the amount of current and deferred income tax assets and
liabilities, and could, in certain circumstances, result in the assessment
of interest and penalties.
Additionally, estimation of the income provisions includes evaluating
the recoverability of deferred tax assets based on our assessment of
the ability to use the underlying future tax deductions before they
expire against future taxable income. Our assessment is based upon
existing tax laws, estimates of future profitability and tax planning
strategies. Deferred tax assets are recognized to the extent that it is
more likely than not that taxable profit will be available against
which the deferred tax assets can be utilized.
Credit Spreads and the Impact on Fair Value of Derivatives
Rogers’ Derivatives are recorded using an estimated credit-adjusted
mark-to-market valuation, which is determined by increasing the
treasury-related discount rates used to calculate the risk-free
estimated mark-to-market valuation by an estimated Bond Spread for
the relevant term and counterparty for each Derivative. In the case of
Derivatives in an asset position (i.e., those Derivatives for which the
counterparties owe Rogers), the Bond Spread for the bank
counterparty is added to the risk-free discount rate to determine the
estimated credit-adjusted value. In the case of Derivatives in a liability
position (i.e., those Derivatives for which Rogers owes the
counterparties), Rogers’ Bond Spread is added to the risk-free
discount rate. The estimated credit-adjusted values of the Derivatives
are subject to changes in credit spreads of Rogers and its
counterparties.
Pension Plans
When accounting for defined benefit pension plans, assumptions are
made in determining the valuation of benefit obligations and the
future performance of plan assets. The primary assumptions and
estimates include the discount rate, the expected return on plan
assets and the rate of compensation increase. Changes to these
primary assumptions and estimates would impact pension expense,
pension asset and liability, and other comprehensive income. The
current economic conditions may also have an impact on the pension
plan of the Company as there is no assurance that the plan will be
able to earn the assumed rate of return. As well, market-driven
changes may result in changes in the discount rates and other
variables which would result in the Company being required to make
contributions in the future that differ significantly from the current
contributions and assumptions incorporated into the actuarial
valuation process.
2011 ANNUAL REPORT ROGERS COMMUNICATIONS INC. 67